Intra-urban wage variation, employment location, and commuting times

Theory predicts that within a metropolitan area, employers located where there is difficult commuting will have to compensate their workers with appropriately higher wages. This should hold whether one is comparing central city work locations with those at the fringe. or simply differences between suburban edge cities. In the longer run, if employers are concerned primarily with labor costs, firm mobility should equalize wages or else agglomeration economies must exist to sustain the differences. Using microdata from the 1990 census for 2 large metropolitan areas in the U.S., wage equations are estimated for urban workers allowing for different wage levels depending on zone of employment. The results show that observationally equivalent workers have wages that vary substantially across employment zones within a metro area, and that this variation is strongly and significantly correlated with the average commute time of the workers employed in that zone. These results hold across several different econometric specifications. Wages and average travel times also are found to be highly correlated with the aggregate number of workers in each zone. but are not affected by zone employment specialization. Thus there is inconclusive evidence as to whether wage/commuting cost differences result from equilibrium agglomeration effects or from a disequilibrium distribution of employment. (C) 2001 Academic Press.